Freeza Meats, which employs more than 45 people, is a specialist in burgers for the catering industry in Britain and Ireland.
Frozen meat from Poland was under quarantine at its cold food store in Co Down when tests carried out by the Food Standards Agency found samples contained around 80% horsemeat.
Freeza Meats Director Paul Mackle insists the family-run business had refused to buy the consignment from Republic-based meat trader McAdam Foods, storing it in a quarantined area since September as a gesture of good will after labelling issues were raised following a random inspection by Newry & Mourne district council officials.
"Potentially it could be very damaging, because even though this produce never got near the food chain it's very hard to explain to somebody watching the TV that it didn't," he told UTV.
Mr Mackle said he is shocked and angry at the revelation.
We are still coming to terms with it. We can't believe we are in this situation through no fault of our own, doing a good turn for somebody. We made sure that it was kept separate.
Paul Mackle, Freeza Meats
In a statement, the company said all tests carried out for horse DNA on their own products were negative.
"This raw material was not purchased by Freeza Meats and never reached the food chain through this company. We have under legal jurisdiction been required to detain the product in quarantine awaiting the direction of the local Environmental Health Office," the statement added.
"There have been no traces of equine DNA in any samples taken from Freeza Meats products."
The firm has sought the authority of the Environmental Health Office to remove and dispose of this product from their premises.
The FSA says the investigation into the traceability of the consignment and their source is "underway".
"Of the 12 samples from the suspect consignment that have been tested, two of the samples came back positive for horsemeat, at around 80%," the FSA said a statement.
"As this meat was detained, it has not entered the food chain."
Newry and Mourne District Council's Environmental Health Department confirmed the meat had been detained for the last five months "due to the condition of its wrapping and queries regarding its labelling and traceability".
"The product was sampled as a result of the Food Standards Agency and the Food Safety Authority of Ireland's ongoing investigation. We can confirm that none of the meat was used in production and it will not be entering the food chain."
John Farrell, the council's Director of Environment, Health & Building Services, confirmed that Freeza Meats have co-operated fully with investigations.
Mr Farrell said the company was put in a difficult position "through no fault of their own".
Freeza Meats had meat in their cold store that they could not move because we had officially detained it and it was up to us to have the meat removed to its owner, put into pet food or destroyed.
John Farrell, Newry and Mourne District Council
"They could not touch this meat and that meat could not get into the food chain," he added.
Meanwhile, McAdam Foods has revealed a team of investigators from the Republic's Department of Agriculture, Fisheries and Food have inspected its premises.
A company spokesman said: "The source of these products is Polish and McAdam Foods has identified the specific Polish supplier names to the Irish authorities.
"McAdam Foods is co-operating fully and willingly with the authorities."
He added: "We confirm that product of Polish origin was stored at Freeza Meats in Newry for McAdam Foods last year on a goodwill basis for McAdam Foods."
The company said it later relinquished ownership of the goods.
McAdam Foods is the third Co Monaghan based firm to be named in the horsemeat scandal. On Monday, the Department of Agriculture confirmed 75% equine DNA was traced in raw material at Rangeland Foods.
It is understood Silvercrest - which is part of the ABP Group - also used the same Polish supplier.
It lost contracts with Burger King and also supermarkets Tesco, Aldi and the Co-operative Group after burgers were found to be contaminated with horse DNA last month.
There are fears the scandal could have severe repercussions on Northern Ireland's food industry.
Stormont Agriculture Minister Michelle O'Neill described it as a consumer confidence crisis and backed the FSA investigation, adding that local meat remains at a high standard.
"We need to get to the bottom of this, get it dealt with, and give people the confidence again that they can buy the local produce," Minister O'Neill told UTV.
"This issue has been an issue of what looks like imported meat that has come into food processors.
"We can stand over our local produce, its full traceability from field to fork that produce is totally traceable. I hope that that will offer some assurance," she added.
Agriculture committee chair Paul Frew echoed the Minister's support for the local meat industry, following an emergency meeting on Tuesday.
The committee was brief by the Department and Mr Frew said DARD officials assured members "there is no danger to public health in relation to beef produced in Northern Ireland".
"The Committee is extremely proud of the Northern Ireland beef industry, as it has one of the highest standards in the world in relation to the traceability of meat. The consumer can be confident that when he/she buys beef produced in Northern Ireland, the product is of the highest standard," he said.
Deputy chair Joe Byrne added: "The Committee understandably has genuine concerns with the recent revelations about horsemeat labelled as beef being found in a cold store in this region.
"We hope that the full story is made available as soon as possible."